Rick Ackerman

Index futures were being primed Monday night for a resumption of last week's moderate uptrend. It was built for sustainability rather than speed, and that's why those of us who have been hating everything about the stock market lately should be careful not to underestimate its potential. Its devious sponsors are clever, to put it mildly, and they have been very cautious about letting the short-covering bears who are driving it get too far ahead of themselves. My 2728 target for the E-mini S&Ps lies about 70 points above, implying a further Dow rally of perhaps 600-700 points is coming. Concerning why we distrust this rally no matter how high it goes, here's yet one more reason, from the latest edition of The Wall Street Journal: "Investors are increasing their cash holdings at the fastest pace in a decade, highlighting doubts about the durability of the stock market’s rebound in the first weeks of this year."

Buyers shredded a key resistance on Friday, leaving little doubt about whether they'll achieve the 2728.25 target shown in the chart. It lies 57 points above, and if and when the futures get there, the Dow Industrials, which settled at 24,706, will be trading for around 25,200. In an update sent out Thursday night I'd suggested getting short if stocks rallied strongly to end the week but pulled back in the final hour. The fact that they barely pulled back at all will have left bears badly on the ropes, where they will remain unless some horrific headline over the weekend bails them out. In the chat room before the close, I mentioned taking a small short position, but this was just a token contrarian bet based on the rally's unstoppable look.______ UPDATE (Jan 22, 10:46 p.m. ET): Tuesday's plunge brought a tinge of doubt to the 2728.25 projection, but it will remain valid in theory until such time as sellers exceed the point 'C' low at 2567.25. Actually, ES would become a mechanical buy in theory if it comes down to 2607.50 (the green line in the chart)._______ UPDATE (Jan 23, 5:09 p.m.): The futures bounced from 2612.50, five points above our tripwire for a mechanical buy. It remains viable, although I'll suggest paper trading this one unless you know how to convert the set-up to 'camouflage' in order  to cut the initial risk of about $2000 per contract down to as little as $60.

My enthusiasm appears to have been premature, since the futures are close to turning intraday charts that had been bullish into dross. The daily chart remains positive, but there is evidently more work to be done on the 'hourly' to build a base for a sustainable rally. However long it takes, the next upthrust will need to exceed a very small 'external' peak at 1304.50 recorded in mid-June to keep the bullish trend begun in August healthy.

How high does this bear rally have to go to fool us into thinking it's the real deal? You don't have to be a technician to answer that question -- just look at the chart. From a visual standpoint, a  move up through the red line would surely get investors' juices flowing. The reason is not just that the Dow would appear to be within shooting distance of the old record high, it would also have pushed past two important peaks created during December's steep plunge. Do we trust our lying eyes at that point? Not unless we want to get slaughtered with the rest of the bullish herd. For as convincing as the rally might seem, it could easily fail above 25,000 due to the bountiful supply that accumulated between 25,500 and 26,000 last year in the February to July period. Mr. Market's M.O. Allow for the additional possibility that the bear rally could fail at any time -- i.e., now -- and the risk could be particularly high if the broad averages end Friday strongly on the upswing. The Dow looked unstoppable at Thursday's close; if the binge were to continue for another day, it would leave bulls feeling giddy and bears nauseated. What a beautiful trap that would set! It would perfectly fit Mr. Market's M.O., which unfailingly makes important tops all but unshortable. To heighten the deception, Mr. Market would avoid ending Friday with stocks at their highs; otherwise, it would be tempting for bears to short into what they'd perceive as an unsustainable burst of exuberance. A measured correction off the peak of a powerful rally would leave them less eager to challenge the mood of the day. Conversely, the appearance of sustainability and moderation would fool bulls and bears alike into expecting Monday to

Buyers blew past a promising rally target at 2636.50 on Thursday, implying they’re spoiling for more.  In fact, the effort exceeded virtually every Hidden Pivot resistance identifiable on the intraday charts, including one at 2642.50 shown in today's chart (see inset). Although the pullback from the intraday high was sharp, bulls had recovered most of it by early evening, leaving shorts badly on the ropes for Friday. All of this makes a move to new recovery highs seem inevitable — so much so that a trader might well have asked at Thursday's close, “How can I go wrong taking a long position overnight?” It is when we start thinking this way that a bell should go off warning us to consider the opposite — i.e., a punitive selloff from out-of-the-blue.  Bottom line: We’ll be hell-of-bullish at the opening, but ready to unfurl the yellow flag at the first sign of a stall.

Although Rick's Picks was itching to short into strength as Wednesday began, we stepped aside when buyers came on stronger than expected. Their bravado didn't last long, however, and by day's end bulls looked spent. Even so, the intraday highs easily exceeded some short-term rally targets (see chart inset), implying that a moderate pullback from these levels should be regarded as a buying opportunity. In the weeks and months ahead, we'll need to get used to this kind of herky-jerky price action, which reflects distribution in a bear market. This is a delicate operation, and the smart guys who carry it out must take great care to avoid giving bears even a faint whiff of weakness. This was not a problem when the short squeeze commenced on December 26 with the subtlety of a trebuchet hurling a Chevy Suburban into the sky. Bears dove for cover and have spent the last three weeks cowering. Making Big Mammals Disappear But they’ve grown less intimidated as the rally’s trajectory has flattened, and this is going to pose a problem for those charged with levitating a stock market that may have seen its best days for a long while. They'll have to make it past Q4 earnings reports -- no small feat if the companies fail to deliver. Even so, you should never count DaBoyz out, since these sleazeballs are very good at what they do. Like a great magician, they can make an elephant -- or a bear -- seem to vanish in front of our eyes, even when we know it's just a trick.

On a very slow day, we worked especially hard to force a trade. We found one in an unaccustomed place – a ‘counterintuitive’ (CI) short in Newmont Mining that produced a small ($120) but satisfying real-money gain for several students. (For the record, they covered most of it a few hours later at the 31.31 midpoint support of the pattern.) One factor that led us to the trade was the price of the stock – at around $31, a cheapie relative to AMZN, GOOG, NFLX and some others we typically look at during these sessions. We also discussed some tentative high-leverage plays for Friday’s expiration, but precise strategies could not be formulated so far in advance.

The broad averages wafted higher Tuesday after being stuck in a holding pattern for more than a week. Although the ascent was gentle for most stocks, the hard-hit FAANGs caught fire, with NFLX leading the pack on a nearly 7% gain. The company announced an 18% rate increase in its most popular plan, which will now cost $13 a month instead of $11. Wall Street loves a company that can make a price increase stick in these very competitive times, and it will allow Netflix to step up the bidding war for A-list talent and content.  While NFLX was streaking higher, the shares of Disney were falling by almost 2%. The company will have to match Netflix dollar-for-dollar to stay competitive, but it won't be easy, since Netflix' pay scale is outrageous. For example, they paid comedian Chris Rock a reported $40 million for two one-hour specials. Nice work if you can get it. But will such extravagant outlays pay off in revenues? The jury is still out, but the suspicion grows that the bidding war has grown too costly to sustain.

The 2634.00 rally target shown in the chart (see inset) lies between two previously given Hidden Pivot resistance points. Those levels could conceivably show stopping power, but use 2634.00 as a minimum upside objective for the near term, or 2636.50 if any higher. I am not recommending getting short because there are so many places within a tight cluster of pivots where a short-term top could occur. Their mere existence implies that if buyers can push easily past them and close above 2640, the rally may just be getting warmed up. _______ UPDATE (Jan 16, 8:10 p.m.): The futures sold off in the final hour after getting within eight points of the 2634.00 target. It remains valid nonetheless, but seeing this rally through will require more patience than has been demanded of us in the past. This is a feature of bear-market rallies, when, in certain phases, those who manipulate stocks are tasked with the delicate distribution of shares when the only significant source of demand for them is short-covering bears.